BUSINESS
Range Resources Corporation operates as an independent natural gas, natural gas liquids (NGLs), and oil company in the United States. The company engages in the exploration, development, and acquisition of natural gas and oil properties. As of December 31, 2021, the company owned and operated 1,350 net producing wells and approximately 794,000 net acres under lease located in the Appalachian region of the northeastern United States. It markets and sells natural gas and NGLs to utilities, marketing and midstream companies, and industrial users; petrochemical end users, marketers/traders, and natural gas processors; and oil and condensate to crude oil processors, transporters, and refining and marketing companies. The company was formerly known as Lomak Petroleum, Inc. and changed its name to Range Resources Corporation in 1998.
INVESTMENT RATING
With future capital returns forecasted to exceed the cost of capital, RRC is expected to continue to be an important Value Builder.
Range Resources has a current Value Trend Rating of B (Positive).
This rating combines inconsistent signals from two proprietary PTR measures of a stock’s attractiveness. Range Resources has a neutral Power Rating of 53 but a good Appreciation Score of 84, with the Positive Value Trend Rating the result.
Range Resources’ stock is selling well below targeted value. The current stock price of $32.88 compares to targeted value 12 months forward of $93.
Range Resources’ high appreciation potential results in an appreciation score of 84 (only 16% of the universe has greater appreciation potential.)
Range Resources has a Power Rating of 53. (This neutral Power Rating indicates that RRC’s chances of enjoying favorable investment performance over the near to intermediate term are only average.)
Contributing to this neutral Power Rating: recent price action has been slightly favorable. Offsetting factors are the Crude Petroleum & Natural Gas comparison group is in a slightly weakened position currently; and the trend in RRC’s earnings estimates has been unfavorable in recent months.
INVESTMENT PROFILE
RRC’s financial strength is above average. Financial strength rating is 65.
Relative to the S&P 500 Composite, Range Resources Corp. has both Growth and Value characteristics; its appeal is likely to be to investors neutral towards Income; the perception is that RRC is higher risk. Relative weaknesses include: low historical profitability, high stock price volatility, and high earnings variability. RRC’s valuation is moderate: moderate dividend yield, low P/E ratio, and moderate price/book ratio. RRC has unusually low market capitalization.
CURRENT SIGNALS
Range Resources’ current operations are strong. Return on equity is rising, reflecting: improving asset utilization; widening pretax margins; and rising leverage.
Range Resources’ current technical position is mixed. The stock price is in a 3.3 month down move. The stock has declined 19.9% from its prior high. The 200 day moving average is in an uptrend. The stock price is below its 200 day moving average. The stock has just risen above its 200 day moving average.
ALERTS
Range Resources Corp. (NYSE: RRC) has benefited from exceptional positive changes in investment behavior: its shorter term price trend turned up, the stock’s recent price rise disrupted its longer term downtrend, and the stock rose on very heavy volume.
Range Resources Corp. (NYSE: RRC) suffers from limited negative changes in fundamentals. Negative developments: the consensus estimate for December, 2024 decreased significantly, and significant quarterly earnings deceleration occurred. Positive development: significant quarterly sales acceleration occurred.
In light of this new information we are reviewing our current Overall Rating of B. This review will be completed in the next several days.
For its fourth fiscal quarter (ending December 31), Range Resources Corp. (NYSE: RRC) has reported E.P.S. of $1.29 compared to $3.38 a year ago. E.P.S. were $3.61 for the latest four quarters through December 31 versus $4.79 for the same period a year ago.
On 2/21/24, Range Resources Corp. (NYSE: RRC) stock enjoyed a very large increase of 7.7%, closing at $32.88. Moreover, this advance was accompanied by exceptionally high trading volume at 205% of normal. Relative to the market the stock has been strong over the last nine months and has risen 14.4% during the last week.
CASH FLOW
In 2022, Range Resources experienced a very significant reduction in cash of -$214 million (-100%). Sources of cash were much lower than uses. Cash generated from 2022 EBITDA totaled +$2,102 million. Non-operating uses consumed -$141 million (-7% of EBITDA). Cash taxes consumed -$15 million (-1% of EBITDA). Re-investment in the business amounted to -$563 million (-27% of EBITDA). On a net basis, debt investors removed -$1,205 million (-57% of EBITDA) while equity investors withdrew -$393 million (-19% of EBITDA).
Range Resources’ Non-operating Income, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Range Resources Peer Group. In most years, Range Resources was in the second quartile and lower quartile. Currently, Range Resources is at median at -7% of EBITDA (-$141 million).
Range Resources’ Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Range Resources Peer Group. In most years, Range Resources was in the top quartile and third quartile. Currently, Range Resources is substantially below median at -1% of EBITDA (-$15 million).
Range Resources’ Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Range Resources Peer Group. (Since 2019 Business Re-investment, %EBITDA has experienced a very sharp recovery.) In most years, Range Resources was in the top quartile and third quartile. Currently, Range Resources is upper quartile at -27% of EBITDA (-$563 million).
Range Resources’ Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Range Resources Peer Group. (Since 2020 Debt Investors, %EBITDA has decelerated very sharply.) In most years, Range Resources was in the lower quartile and third quartile. Currently, Range Resources is lower quartile at -57% of EBITDA (-$1,205 million).
Range Resources’ Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Range Resources Peer Group. In most years, Range Resources was in the second quartile. Currently, Range Resources is slightly above median at -19% of EBITDA (-$393 million).
Range Resources’ Change in Cash, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Range Resources Peer Group as well. In most years, Range Resources was in the third quartile and second quartile. Currently, Range Resources is below median at -10% of EBITDA (-$214 million).
Range Resources’ Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Range Resources Peer Group. In most years, Range Resources was in the lower quartile. Currently, Range Resources is lower quartile at 0%.
PROFITABILITY
Range Resources’ return on equity has improved very significantly since 2013. The current level is 39.9% versus the high of 4.8% and the low of -73.1%.
This very significant improvement was due to very strong positive trend in pretax operating return and little change in non-operating factors.
The productivity of Range Resources’ assets rose over the full period 2013-2023: asset turnover has enjoyed a very strong overall uptrend.
Reinforcing this trend, pretax margin enjoyed a volatile overall uptrend that accelerated very sharply from the 2019 level.
Non-operating factors (income taxes and financial leverage) had little influence on return on equity.
Range Resources’ return on equity is upper quartile (39.9%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is upper quartile (25.0%) reflecting asset turnover that is upper quartile (0.59X) and upper quartile pretax margin (42.1%).
Tax “keep” rate (income tax management) is below median (80.4%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is at the upper quartile (1.99X).
GROWTH RATES
There are no significant differences between Range Resources’ longer term growth and growth in recent years.
Range Resources’ historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 4.4% per year. (More recently it has been 28.7%.)
Total asset growth has been -7.0% per year. (More recently it has been 1.8%.)
Annual E.P.S. growth has been 7.4% per year.
Equity growth has been -6.8% per year. (More recently it has been 29.1%.)
Range Resources’ consensus growth rate forecast (average of Wall Street analysts) is 17.0% — substantially above the average of the historical growth measures.
Relative to the Range Resources Peer Group, Range Resources’ historical growth measures are erratic. Revenue growth (4.4%) has been slightly above median. Total asset growth (-7.0%) has been substantially below median. Equity growth (-6.8%) has been substantially below median. E.P.S. growth (7.4%) has been lower quartile.
Consensus growth forecast (17.0%) is at the lower quartile.
PRICE HISTORY
Over the full time period, Range Resources’ stock price performance has been volatile and significantly below market. Between April, 2013 and February, 2024, Range Resources’ stock price fell -55%; relative to the market, this was a -86% loss. Significant price moves during the period: 1) March, 2020 – October, 2021: +923%; 2) December, 2019 – March, 2020: -53%; 3) September, 2018 – November, 2019: -79%; 4) April, 2016 – February, 2018: -70%; 5) April, 2015 – December, 2015: -61%; and 6) May, 2014 – January, 2015: -50%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 17.3% is substantially above median relative to the S&P 500 Composite.
In addition to being substantially above median relative to S&P 500 Composite, current annual total return performance through January, 2024 of 17.3% is at the upper quartile relative to Range Resources Corp. Peer Group.
Current 5-year total return performance of 22.1% is upper quartile relative to the S&P 500 Composite.
Through January, 2024, with upper quartile current 5-year total return of 22.1% relative to S&P 500 Composite, Range Resources’ total return performance is at the upper quartile relative to Range Resources Corp. Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, RRC’s overall valuation is quite low. The highest factor, the ratio of enterprise value/assets, is slightly below median. Price/equity ratio is below median. Ratio of enterprise value/revenue is near the lower quartile. Ratio of enterprise value/earnings before interest and taxes is lower quartile. The lowest factor, the price/earnings ratio, is lower quartile.
Relative to Range Resources Peer Group, RRC’s overall valuation is normal. The highest factor, the price/equity ratio, is upper quartile. Ratio of enterprise value/assets is upper quartile. Ratio of enterprise value/revenue is at the lower quartile. Price/earnings ratio is lower quartile. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is lower quartile.
Range Resources has a very large value gap compared to the median. For RRC to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 2.39X to 2.86X. If RRC’s ratio of enterprise value/revenue were to rise to 2.86X, its stock price would be higher by $8 to $41.
For RRC to achieve upper quartile valuation relative to the Range Resources Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 2.39X to 3.74X. If RRC’s ratio of enterprise value/revenue were to rise to 3.74X, its stock price would increase by $23 from the current level of $33.
VALUE TARGETS
With future capital returns forecasted to exceed the cost of capital, RRC is expected to continue to be an important Value Builder.
Range Resources’ current Price Target of $89 represents a +171% change from the current price of $32.88.
This high appreciation potential results in an appreciation score of 84 (only 16% of the universe has greater appreciation potential.)
With this high Appreciation Score of 84, the neutral Power Rating of 53 results in an Value Trend Rating of B.
Range Resources’ current Price Target is $89 (+31% from the 2022 Target of $68 and +171% from the 02/21/24 price of $32.88). This rise in the Target is the result of a +42% increase in the equity base and a -8% decrease in the price/equity multiple. The forecasted increase in growth has a very large positive impact on the price/equity multiple and the forecasted decline in cost of equity has a very large positive impact as well. More than offsetting these Drivers, the forecasted decline in return on equity has a very large negative impact.
PTR’s return on equity forecast is 17.5% — significantly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly above the 2020 low of 4%.
PTR’s growth forecast is 33.0% — substantially above our recent forecasts. Forecasted growth exhibited a slight, erratic decline between 2014 and 2022. The current forecast is significantly above the 2021 low of 0%.
PTR’s cost of equity forecast is 11.3% — slightly below recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2014 and 2022. The current forecast is well above the 2017 low of 3.2%.
At Range Resources’ current price of $32.88, investors are placing a positive value of $6 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 9.0% per year, and a return on equity of 36.0% versus a cost of equity of 14.1%.
PTR’s 2024 Price Target of $89 is based on these forecasts and reflects an estimated value of existing assets of $20 and a value of future investments of $69.
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